Buy OCL India; target of Rs 671: Emkay Global

Emkay Global's report on OCL IndiaOCL India posted weak set of numbers vis-à-vis our estimates with adj. EBITDA at Rs731bn (up 37.5% yoy) against our estimate of Rs935mn and OPM of 13.7% (vs. est. 16.7%) led by increased losses in Refractories segment and lower realization of cement. Cement sales volume grew 27.3% yoy to 1.1mt, in-line with estimate, however realization at Rs4,375/tn was lower than estimate of Rs4,545/tn. Derived EBITDA/tn was at Rs681/tn (vs. est. Rs796/tn) against Rs450/Rs923 for Q2FY15/Q1FY16 Refractory segment continues to disappoint with EBIT loss of Rs90mn, for 3rd quarter in the row, due to poor demand scenario. Revenue from the segment was down to Rs507mn Sales volume growth at 32.6% yoy in H1FY16 remains robust and  helped the company to report 38.3% yoy growth in operating profit. The company is expected to generate operating cash flow of Rs15.8bn over FY15-FY18e which will help it for future growth. Valuation at 3.8x FY17e EV/EBITDA looks attractive and we maintain Buy on the stockValuations comfortable, maintain BuySales volume growth at 32.6% yoy in H1FY16 remains robust and helped the company to report 38.3% yoy growth in operating profit. We expect EBITDA margin to expand by 475bps over FY15-FY18e to 19.5% in FY18e going forward on account of higher sales volume, improved performance of refractories segment and higher cement prices. The company is expected to generate operating cash flow of Rs 15.8bn over FY15-FY18e which will help it for future growth. Valuation at  5.4x/3.8x/3x FY16e/FY17e/FY18e EV/EBITDA looks attractive and we maintain Buy on the stock with a revised PT of Rs 671 (earlier: Rs714). We have valued Cement/Refractories/subsidiaries business at 5.5x/3x/3x mid-FY18e EV/EBITDA, says Emkay Global research report.For all recommendations, click hereDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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